Definition
The Darvas Box Theory is a trading strategy developed by Nicolas Darvas in the 1950s. It is a momentum-based strategy that uses price and volume to identify potential buy and sell points. The theory is based on the idea that when a stock breaks out of a predetermined price range, it is likely to continue in that direction.
Importance
The Darvas Box Theory is an important trading strategy for investors who are looking for a way to identify potential buy and sell points. It is a momentum-based strategy that uses price and volume to identify potential entry and exit points. The theory is based on the idea that when a stock breaks out of a predetermined price range, it is likely to continue in that direction.
Example
For example, if a stock is trading in a range between $50 and $60, and then breaks out above $60, the Darvas Box Theory suggests that the stock is likely to continue to move higher. The investor would then look to buy the stock at the breakout point and set a stop loss at the previous high of $60.
Table
Darvas Box Theory
Price Range $50 – $60
Breakout Point Above $60
Stop Loss $60
Key Takeaways
- The Darvas Box Theory is a momentum-based trading strategy developed by Nicolas Darvas in the 1950s.
- It uses price and volume to identify potential buy and sell points.
- The theory is based on the idea that when a stock breaks out of a predetermined price range, it is likely to continue in that direction.
- Investors should set a stop loss at the previous high of the price range.
Conclusion
The Darvas Box Theory is a momentum-based trading strategy that uses price and volume to identify potential buy and sell points. It is based on the idea that when a stock breaks out of a predetermined price range, it is likely to continue in that direction. Investors should set a stop loss at the previous high of the price range to protect against losses. The Darvas Box Theory is an important trading strategy for investors who are looking for a way to identify potential buy and sell points.
